Chapter 11: Gov Stakeholder Flashcards
Business, Government, and Regulation
Fundamental Part of this chapter
How government impacts us
Interstate Commerce Act of 1887
Extensive federal government regulation of interstate commerce. Created the Interstate Commerce Commission which became the first federal regulatory agency and a model for future agencies.
Trust
An organization that brought all of or most competitors under a common control that then permitted them to eliminate most of the remaining competitors by price-cutting. They would restrict production and raise prices
Sherman Antitrust Act
The first in a series of actions intended to control monopolies in various industries. Outlawed any contract, combination, or conspiracy in restraint of trade, and it also prohibited the monopolization of any market.
The Sherman Antitrust Act was used to break up which companies
Standard Oil Company, American Tobacco Company
Clayton Antitrust Act
Augmented the Sherman Antitrust Act. Outlawed price discrimination that gave favored buyers preference over others and forbade anti-competitive contracts, whereby a company would agree to sell only to suppliers who agreed not to sell the products of a rival competitor.
Federal Trade Commission
Intended to maintain free and fair competition and to protect consumers from unfair or misleading practices.
Legislation in the New Deal by Franklin Roosevelt
Securities Act of 1933 and Securities and Exchange Act of 1934
Securities Act of 1933 and Securities and Exchange Act of 1934
Aimed at curbing abuses in the stock market, stabilizing markets, and restoring investor confidence in order to prevent a second depression.
Full Employment Act
The government assuming responsibility for restoring prosperity and promoting economic growth through public works programs.
Sarbanes Oxley Act
Stricter regulation to publicly traded businesses
Two Ethical Systems of Belief
Individualistic ethic of business
Collectivisitc ethic of government
Four Business Beliefs
Individualistic ethic
Maximum concession to self-interest
Minimizing the load of obligations society imposes on the individual (personal freedom)
Emphasizes inequalities of individuals
Four Government Beliefs
Collectivistic ethic
Subordination of individual goals and self-interest to group and group interests
Maximizing the obligations assumed by the individual and discouraging self-interest
Emphasizes equality of individuals
Interaction occurs among which three things
Business
Government
Public
The Government influences Business through
Regulation, taxation, and other forms of persuasion
Business influences the Public through
Advertising and public relations
The Public influences the Government through
Political process, voting, special-interest groups, contributions
The Government influences the Public through
Politicking, Political influence, Public policy formation
The Public influences Business through
Interest Groups, Not Buying Products (the marketplace), Protests
Businesses influence the Government through
Lobbying
Two kinds of influence that the government has on businesses
Nonregulatory
Regulatory
Two major issues under nonregulatory
Industrial Policy (the role the government plays in shaping the national economy) Privatization (whether current public functions such as public education should be turned over to the private business sector for more effective and efficient administration.
Industrial Policy
Every form of state intervention that affects industry as a distinct part of the economy.
A newer form of industrial policy is characterized by Robert Reich in his book
The Next American Frontier (national industrial policy that would identify winning (sunrise) industries and foster their growth)
Privatization
Refers to the process of changing a public organization to private control or ownership
The intent of privatization
To capture both the discipline of the free market and a spirit of entrepreneurial risk-taking
Two functions government might perform under privatization
Producing (have your own employees who do it) a service and providing (has a program for and actually pays for a service) a service
Example of providing a service
city government employing a private security firm to work a basketball game
Example of producing a service
city governments own police force provided security at a basketball game
Federalization
The return to the government sector
Other nonregulatory governmental influences
Employer, Purchaser, Subsidies, Transfer Payments, Competitor, Loan Guarantees, Taxation, Monetary Policy, Moral Suasion (act in public interest)
Regulation
The act of governing, directing according to rules, or bringing under the control of law or constituted authority.
A federal regulatory agency is one that
Has decision making authority
Establishes standards or guidelines conferring benefits and imposing restrictions on business conduct
Operates physically in sphere of domestic business activity
Has its head and/or members appointed by the president
Has its legal procedures generally governed by the Administrative Procedures Act
Four Major Reasons for Regulation
Controlling natural monopolies
Controlling negative externalities
Achieving Social Goals
Other Reasons
Market failure
Failure of the free enterprise system
Natural Monopoly
Exists in a market where the economies of scale are so great that the largest firm has the lowest costs and thus is able to drive out its competitors (ex. telephone companies, railroads, online platforms)
Negative Externalities (Spillover effects)
Result when the manufacture or use of a product gives rise to unplanned or unintended side effects on third parties (producer and consumer are the first and second parties.
Examples of negative externalities
Air pollution (ex. emissions), water pollution, improper disposal of toxic waste
Consequence of negative externalities
Neither the producer nor the consumer pays for all the costs that are created by the manufacture of the product.
Social Costs
Costs that are absorbed by society rather than being incorporated into the cost of making the product
Examples of social goals of government
Harmful effects of a dangerous product or the unfair treatment of minorities resulting from employment discrimination. Keep people informed, preservation of natural security, consideration of fairness or equity, protection of those who provide essential services, allocation of scarce resources and protection of consumers from excessively high price increases
Other reasons
Excessive competition
Two types of regulation
Economic regulation and Social regulation
Economic Regulation (focus on markets and economic variables) for selected industries
The classic or traditional form of regulation that dates back to the 1800s in the U.S. Regulatory bodies that regulate business behavior through the controlling and influencing economic or market variables such as prices, entry to and exit from markets and types of services offered.
Three major costs of economic regulation
finance and banking
industry-specific regulation
general business
Social Regulation (business practices affecting all industries)
Furtherance of societal objectives and focuses on business’s impacts on people. People in their roles as employees, consumers and citizens.
Examples of economic regulation
Civil Aeronautics Board (CAB)
Federal Communications Commission (FCC)
Current Trend in economic regulations
reregulation (financial stability oversight board)
Examples of Social regulation
Equal Employment Opportunity Commissions (EEOC)
Occupational Safety and Health Admin. (OSHA)
Consumer Product Safety Commission (CPSC)
Environmental Protection Agency (EPA)
Current trend in social regulation
reregulation (Consumer financial protection bureau)
Direct costs of regulation are most visible when
we look at the number of new agencies created, aggregate expenditures, and growth patterns of the budgets of federal agencies responsible for regulation
Indirect costs of regulation
forms, reports, questionnaires that businesses must complete
Induced costs of regulation
Innovation may be affected, new investment in plant and equipment may be affected, small businesses may be adversely affected
